If you get down to it, probably the biggest function of a university is social: if you majored in an engineering discipline, think about your industry connections. How many of them were classmates in undergrad? Elite universities have served as social hubs for the upper class for centuries and the networking function of college and university is invaluable. I'm not using this as an argument for keeping the existing university structure, but if the author really wants to make universities obsolete, he needs to think about how one might facilitate this and other functions. (I haven't even touched the subject of research, which many professors at R1 universities think of as their primary purpose, not teaching. "Teaching" is an unpleasant job you offload on adjuncts and TAs.)
We've had institutions that function like the ones that Matt Welsh envisions for thousands of years. They're called libraries.
[1] http://www.insidehighered.com/news/2011/01/18/study_finds_la...
edit: added citation ;)